Frustrated mature couple having problems with paying their bills

Your Complete Guide To Guaranteed Loans: Definition, Alternatives And More

Victoria Araj5-minute read
PUBLISHED: February 11, 2024


A guaranteed loan may sound like a financing option that comes with peace of mind. Borrowers are guaranteed approval, except in rare cases, and even in some cases without undergoing a credit check. But these loans usually come at a cost. You’ll likely be subject to a high interest rate and fees as well as a strict loan term.

Before taking out any kind of loan, it’s always best to be certain you’re making the right choice. Let’s run through the ins and outs of guaranteed loans, their common risks and a few alternatives.

What Is A Guaranteed Loan?

Guaranteed loans allow borrowers to quickly access funding without facing a lengthy loan application process. These loans boast virtually instant loan approval and less rigid eligibility requirements than more traditional loan options. As mentioned already, sometimes you can get approved without a credit check. Some financial institutions may require a credit check with a guaranteed loan, but even borrowers with poor credit have a strong chance of approval.

These loans tend to be more accessible than most, but the downside of higher approval rates is a much higher annual percentage rate (APR) for borrowers. The short repayment term associated with a guaranteed loan can add extra pressure to paying back an already pricey loan.

Depending on the type of guaranteed loan you go for, falling into a debt cycle can be easy.

Types Of Guaranteed Loans

You can get a guaranteed loan in a few different forms. Some common types of guaranteed loans include:

Installment Loans

Not all installment loans are guaranteed loans, but the ones where a third party agrees to make your payments if you default on the loan are. With an installment loan, you borrow a sum of money and repay it over a set time – usually in monthly payments. These loans often require strong credit, but some lenders offer bad credit loans specifically for borrowers who lack the credit typically needed for loan approval. Approved borrowers with a lower credit score generally are stuck with a higher interest rate.

Since you pay off this loan over time, it can be a more long-term option. But keep in mind, the more time you spend repaying the loan, the more you end up paying interest.

Payday Loans

Payday loans are small, short-term loans a borrower agrees to pay back with their next paycheck, and these loans usually don’t require a credit check. To get a payday loan, you’ll likely just need to prove you earn an income.

You may have to write your approved lender a check for the loan amount, plus any fees, dated with the loan due date. In some cases, lenders request access to your bank account so they can pull funds on the loan due date.

Payday loans typically come with high fees and a high interest rate. In fact, payday loan APRs are often 10 times higher than traditional loan APRs. If you can’t repay the loan on time, you’ll likely incur even more fees. Some people have to roll the loan into their next pay period. When that happens, the lender charges more fees and debt quickly begins piling up.

Title Loans

A title loan is a short-term loan you secure with your car title. Your car acts as collateral so your lender can take possession of your car if you fail to repay the loan.

Not only do you risk losing your vehicle, but these loans also tend to have a high interest rate and elevated fees. You may also have limitations on how much money you can borrow. Usually, you can only take out a certain percentage of the car’s value. As with payday loans, you can roll over your balance – for a cost – which can lead to spiraling debt.

Why Not To Get Guaranteed Loans

As explained, guaranteed loans can be an expensive and risky financing option. Below are a few reasons to avoid guaranteed loans and perhaps pursue another option.

  • High interest rates and fees: Lenders commonly charge inflated interest rates and fees on guaranteed loans. For example, payday loan fees range from $10 – $30 on every $100 taken out. If you can’t pay the loan back on time, you’ll probably be hit with more fees.
  • A short repayment period: Loans such as payday and title loans offer little to no flexibility in their repayment term. And the repayment period may start as soon as 2 weeks after you receive your loan funds.
  • An increased possibility of falling into a debt cycle: Fast-approaching due dates met with an astronomical interest rate can make it easy to get sucked into a debt cycle. Borrowers of these loans may need to roll their loan over or take out another loan to pay off the original one.

Guaranteed Loan Alternatives

While securing a loan with bad credit, or no credit at all, can be challenging, it’s possible. Financing options exist for borrowers in various financial situations, and you can normally find loan offers with a lower interest rate and better term than guaranteed loans offer. Some guaranteed loan alternatives to consider include the ones described next.

Personal Loans

If you’re unsure whether you would be approved for a personal loan based on your credit history and credit score, you may still have options. Lenders tend to accept a lower credit score for a secured loan, but you’ll need to put collateral on the loan. If you don’t have collateral you’re willing to potentially give up, you could go with an unsecured loan and use a co-signer to improve your chances of approval.

Rocket LoansSM doesn’t currently offer the option to co-borrow on an unsecured personal loan.

Credit Card Cash Advances

If you have a credit card, you may be able to get a cash advance from your line of credit. This option doesn’t usually require a credit check, but it tends to come with a high APR and fees. Even so, these costs will likely be lower than those associated with guaranteed loans.

Payday Alternative Loans

This option is similar to a payday loan, but with a few regulations. Only credit unions can provide payday alternative loans, and they can charge an application fee of up to $20. The repayment period can be anywhere from 1 – 6 months, and the loan can’t be rolled over. These loans are also typically in the $200 – $1,000 range. If you need to take out less or more money, you may want to consider another option.

0% APR Credit Cards

Some credit card issuers offer credit cards with a 0% introductory APR. You can use the card and pay back the funds you used interest-free, at least for a while. If you decide to go this route, try to pay off your balance during the introductory period. After the promotional time ends, you’ll start to incur interest charges.

The Bottom Line

Guaranteed loans can offer short-term relief if you’re in a tough financial spot, but these loans customarily come with long-term costs. A high interest rate and short repayment term can put you at risk of getting trapped in a potentially vicious debt cycle.

Before you put your financial wellbeing on the line, it’s best to explore safer options. If you’re considering a personal loan, start an application with Rocket Loans to see the terms you may prequalify for.

Get In Touch With Us.

Our friendly Personal Loan Experts are here to help!

Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.